Did Greenspan try to quash a housing-bubble debate?

By Felix Salmon

May 3, 2010

Ryan Grim's story about recently-released Fed minutes from 2004. "Greenspan Wanted Housing-Bubble Dissent Kept Secret" is the headline, and it's running with a large and unflattering picture of Greenspan.
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The Huffington Post is running hard with Ryan Grim’s story about recently-released Fed minutes from 2004. “Greenspan Wanted Housing-Bubble Dissent Kept Secret” is the headline, and it’s running with a large and unflattering picture of Greenspan.

The story’s being picked up all over the place: Kevin Drum, Ryan Avent, and Yves Smith have all repeated that Greenspan tried to quash debate over the housing bubble by saying this:

We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand.

Except, if you look at the actual document, he’s not talking about the housing bubble at all. He’s responding to Vincent Reinhart, who’s putting together the minutes of the previous meeting, and wondering how much of the discussion on the subject of transparency to include in those minutes. There was a draft which included four paragraphs “covering the Committee’s discussion of its communications policy”, and the question was whether those paragraphs should be included or not.

Here’s Greenspan’s quote in fuller context:

Let me first follow up on your transparency assessment. I think Cathy Minehan has raised an interesting point. I would say this: We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand. We have a ratchet in here where, if we were to move forward, we can’t go back. So the concept of transparency is a very important concept but one that should be approached with a recognition that we cannot move back and forth on it. I’m a little concerned here that by raising certain issues we may not be able to backtrack.

Essentially, what Greenspan is saying is that once the Fed starts talking in great detail about its own transparency, it has to be more transparent — just talking about it has that effect. And so there are dangers to putting lots of talk about transparency into the minutes, since once it’s there, the Fed loses a certain amount of control over what goes into the minutes and what doesn’t.

You can think that Greenspan is making a good point or you can disagree with him, but the fact is that he was not talking about the housing bubble – or about any specific economic discussions. This was a meta-discussion about how much to discuss discussions.

Grim links to Calculated Risk, which first found the discussion of the housing bubble in the minutes, but there’s no mention of Greenspan in CR’s post, or in any of the 300 comments on that post. Ben Bernanke talks en passant about a possible housing bubble on page 69 of the transcript; Greenspan’s comments don’t come until page 90. Much as I love to bash the guy, I don’t think that the HuffPo story stands up.

Update: Ryan Avent does actually note in his post that Greenspan’s remarks were taken out of context. And Ryan Grim has now updated his story, explaining that “it’s unrealistic to separate general discussions about monetary policy and specific talk about a housing bubble, especially given that it was just aired moments earlier.” That’s our point of disagreement: I think it’s perfectly realistic, and I clearly have a very different idea from Grim about what counts as “moments earlier”.